Where did all this money go? It can't disappear just like that, can it?
I can't withdraw more than a few K per week with crypto exchanges. How can $300B evaporate just like that?
I can't withdraw more than a few K per week with crypto exchanges. How can $300B evaporate just like that?
If just a few parties trade one-trillionth of an asset at $1, then we say that asset is worth a trillion dollars because we extrapolated. If the next trillionth sells for $2, we’ve just doubled the valuation to two trillion dollars, but that amount never changed hands, and at worst only one person only ever valued the asset above a trillion dollars. If the next trillionth sells for $0.50 all of a sudden we’ve wiped $1.5 trillion in valuation off the face of the Earth but only two dollars and fifty cents has changed hands in this example. In broad terms, that example explains what is going on here.
The $300B that “evaporated” mostly never existed in the first place. The order books are not very deep and the valuation of Bitcoin looks great as long as everyone hodls and refuse to let the price go down- at the expense of trading volume. Once people get nervous and decide they want to try to turn their imaginary crypto gains into real money to cover losses in the slightly less imaginary stock market, the selling price tumbles because there aren’t that many bids at the previous price. So the price moves down without much volume being traded.
In a thick market, one with many buyers and sellers and lots of transactions happening all of the time, you can be reasonably confident that if you go to sell something you will receive something reasonably close to the current price. In a thin market you may get a very different price when you go to buy and sell.
A persistent criticism of crypto markets is that they APPEAR to be thick but that most of the trades happening are just bots buying and selling on behalf of a very small number of actual participants in order to give the appearance of high volumes and that people will be in for a rude awakening if they ever try to exit out of a substantial position (the price they receive may be a fraction of the current market price, assuming they are even able to find a buyer at all).
I could see this. Somewhere else it was pointed out during this "crash" that it was all off-chain, blocks and mempool were relatively empty, so the crash was on exchanges.
Valuation was lost. Not actual coins. That works with any stocks...
Don’t worry, the unregulated exchanges can wash trade the prices right back up again. Just don’t be left holding a bag when the USD liquidity runs dry.
Market cap is last price times total supply. Only a few coins are sold each day compared to the total supply so changes in price have a magnified affect on market cap.
For example a blockchain has 10 coins and a fixed price initial sale at 1$ per coin. All coins are sold so the market cap is 10$ which refects the total money sunk into the coin.
But now someone sells their coin for 2$. The market cap is now 20$ but only 11$ we're spent on the coins.
If it dropped to zero it wouldn't mean any bitcoin or USD disappeared, just that no one wants to buy it; mathematically everything still adds up.
The 300B number comes from market cap. Take the current price of BTC, multiply it by the number of BTC, and call that the value of bitcoin as a whole. But that's just an overly simple guess to the total value, not a mathematical fact.
Reality is of course more complicated: Imagine the BTC market as an order book. Maybe there's 10 people with an order to buy for 6k or less, 3 people with an order to buy at 5.7k 5 people with an order to buy at 5.5k or less, etc.
Then if someone sells 18 bitcoin they'll get 6k for the first 10, 5.7k for the next 3, and 5.5k for the rest; while causing the price to lower from 6k to 5.5k. Since there's way more BTC than this hypothetical person sold, it causes the market cap to lower much more than the amount of money they made.
And of course this too isn't static in the real world. Some people may sell when they see the price going down, some people may _buy_ when they see the price going down, and general unregulated chaos.
These can differ greatly.
If I buy one Bitcoin on the market for $1, and then another Bitcoin on the market for $100, I now have two Bitcoins, with a market cap of $200, which I only paid $101 for. It's like $99 just appeared out of thin air! But that $99 might disappear again when I sell my bitcoins. After selling one of them, the market price might plummet back down to $1.
When someone on your street sells their house for $1 million, the paper value of the neighbourhood might shoot up by $10 million, just from all the nearby houses being revalued at that latest price, despite only $1 million actually changing hands. The same can happen in reverse, too.
Market cap can change a lot, using very little money, depending on how many units or shares there are.
For example: 1 million MC = 1 million shares * 1$ cost per share
If one person is suddenly able to sell 1 share at 2$, market cap immediately doubled to 2 Million, using only 2$.
depends on location/country etc. Houses are out of reach for most millenials worldwide and i don't see that changing either
Note that this applies to all asset classes, although many asset classes do have some rules of thumb that can indicate if the current market value seems overvalued or undervalued. (It should be noted that as of late, these rules of thumb suggest that many asset classes range from "overvalued" to "holy hell, where is this valuation coming from‽").
Bitcoin is somewhat unusual in that many people invest in Bitcoin primarily, if not solely, expecting to make money only by selling it off to somebody else later for a higher price--holding Bitcoin doesn't offer any kind of dividend like holding money in stocks, real estate, bonds, or even the miserly rate offered in a bank account. Thus, compared to other assets, you should be extremely skeptical that the actual "total capital basis" has any close relation to the market capitalization. (I personally suspect that the market capitalization is several multiples of the "total capital basis", and I suspect there's even less money sitting in the cryptocurrency ecosystem than even the "total capital basis").
At the same time however you can't outright move a bunch of money off an exchange unless your account is rated for that. I don't particularly move a lot of value in cryptocurrency (I'm not remotely close to wealthy, just a SWE in an east coast, non-FAANG job) but I have a 250k USD daily withdraw limit on my exchange account.
At least on my main exchange, if you set up certain security restrictions(2FA, wallet quarantine periods, etc), do KYC, and have an active account for X duration in time, you get larger withdraw limits and access to higher trade volume tiers. It's all about how much risk you present to the exchange and the associated financial organisations. I represent a very low risk level (I'm very boring and generally risk adverse) so I get access to pretty high withdrawal and deposit volumes. I don't leverage them but if I wanted to I could.
Might even make sense to calculate how much is on cold wallets of known entities and then add to those how many actual coins have moved in let's say in year. Then multiply this number by price to get more realistic idea of market cap.
And yes, same is true for the stock market. Everything is made up. Nothing is real.
Many other assets are merely priced in bitcoin and their dollar value can fall without a single trade occurring. This needs to be fixed sector wide.
And finally, people have unlimited withdrawal limits to fiat or crypto from exchanges. You need to convince your exchange to raise yours or get another exchange. OTC desks have no limit which is what institutional traders use.